U.S. housing market about to get SLAMMED

[opihiman2]

Just heard through the grapevine from some people in the industry that lending standards are getting SUPER tight.  The jumbo loan market is going bye bye.  Warehouse banks will not be doing those.  FHA loans are going bye bye too.  Warehouse banks are pulling out of this market, and I heard now most retail banks are also pulling out of FHA's.  Many tighter restrictions on reserves -- might need up to 6 months of reserves on gifted down pays, tighter restrictions for self employment, really tight restrictions on retirement accounts.  DTI is getting tighter on FHA's, and if you can even get a jumbo, getting tighter on that too.  FICO score minimums are going up too. 

 

There's a ton of new stuff coming down from private investors, but it should be coming out soon. 

 

Basically, no one has learned a damn thing since 2008.  And the Fed blew up a HUGE equity bubble (with all the corporate debt funding buy backs) AND housing bubble again.  I did not know this, but I've heard from a lot of people in RE that you had people making 40k/year with multiple leases on cars outbidding house prices by 20% or more.  I've even heard from closing agents that they've had people take out three loans just to make it to the closing costs.  It's insane.  But, it explains the insane housing prices I'm seeing again in my neck of the woods.  Median homes are now priced anywhere from 10 to 15x median local household incomes.  It's back to 2008, I think.

 

Fun fun times.  Can't wait to see the carnage.

[winjitsu]

Just heard through the grapevine from some people in the industry that lending standards are getting SUPER tight.  The jumbo loan market is going bye bye.  Warehouse banks will not be doing those.  FHA loans are going bye bye too.  Warehouse banks are pulling out of this market, and I heard now most retail banks are also pulling out of FHA's.  Many tighter restrictions on reserves -- might need up to 6 months of reserves on gifted down pays, tighter restrictions for self employment, really tight restrictions on retirement accounts.  DTI is getting tighter on FHA's, and if you can even get a jumbo, getting tighter on that too.  FICO score minimums are going up too. 

 

There's a ton of new stuff coming down from private investors, but it should be coming out soon. 

 

Basically, no one has learned a damn thing since 2008.  And the Fed blew up a HUGE equity bubble (with all the corporate debt funding buy backs) AND housing bubble again.  I did not know this, but I've heard from a lot of people in RE that you had people making 40k/year with multiple leases on cars outbidding house prices by 20% or more.  I've even heard from closing agents that they've had people take out three loans just to make it to the closing costs.  It's insane.  But, it explains the insane housing prices I'm seeing again in my neck of the woods.  Median homes are now priced anywhere from 10 to 15x median local household incomes.  It's back to 2008, I think.

 

Fun fun times.  Can't wait to see the carnage.

 

Can't wait to jump in.

 

Saw another note on people with multiple Airbnb properties all on mortgages that may have to default soon. Without a doubt Airbnb helped fuel part of the asset price run-up and can't wait to see the prices come back down to earth.

 

 

[opihiman2]

Yep, also Zillow those mother fuckers are done flipping houses.  I've heard many house flippers were back into the market, and they are now getting caught swimming naked. 

[Viking]

If you think house prices are high where you live in the US try prices in Vancouver or Toronto north of the border. Canada missed the housing crash the US had in 2008. And for the past 10 years prices have gone much, much higher. Housing construction and related industries is a very big part of our economy (larger as a % of GDP, i think, than the US when it had its bubble in 2008).

 

The near term outlook for Van/Toronto real estate is pretty grim:

1.) asian buyers will likely disappear for a while

2.) properties purchased/rented out as air bnb rentals will quickly become uneconomical. Owners will need to have lots of liquidity to ride out the storm or will be forced to put units back on the market (‘hotel’ business is broken for a while)

3.) coming recession will shrink first time buyer demand

 

Having said all that the market has absorbed every punch thrown at it the last 20 years. Free money (rock bottom interest rates) will help. But will that be enough this time?

 

The real risk for housing might be the economy. If the virus-lead mild recession causes the housing bubble to pop then Canada could experience a severe recession in cities like Vancouver and Toronto.

[montizzle]

If you think house prices are high where you live in the US try prices in Vancouver or Toronto north of the border. Canada missed the housing crash the US

Having said all that the market has absorbed every punch thrown at it the last 20 years. Free money (rock bottom interest rates) will help. But will that be enough this time?

 

 

This is the question keeping me up at night these days. Every homeowner I know is deferring their mortgage at the moment. I'm not sure if it's the only option available, but they're all opting for a lump sum payment of the deferral at the end of their term. Theres no real plans in place though to be able to actually save up this lump sum. It seems everyone plans to just go back to living paycheque to paycheque and hope the money saves itself? Given how great us Canadians as a whole have been at saving and staying out of debt (lol), I don't see a situation where a big portion of these mortgages don't default.

 

On the flip side, every non-homeowner I know is salivating at the thought of being able to actually afford a house. These are people in their late twentys with decent jobs. Owning a house in the GTA is the holy grail for them, and now they think it may be a real possibility.

 

No clue how this will turn out.

[thepupil]

Here in DC metro burbs, the market continues to function well albeit at a less frenzied pace, my friends are looking in th $1mm range (entry level SFH for the wealthy parts). Pre-corona, a house they looked at had 5 offers within 3 days of list (before the open house), 2 of which are were all cash.

 

Now things are slower, no open houses and showings/pre-inspections must be scheduled one at a time.

 

They’re in the middle of the process on a house whose offer deadline was set a week after list instead of 3-4 days because of the coronavirus complications. There are still 3 people who have paid $500+ for a pre-inspection so as to make an offer without the inspection contingency.

 

Hasn’t hit us yet, probably because there aren’t many other major world capitals where you can buy a nice little updated 80 year old house with a little yard within 30 minutes of downtown for only $1mm USD(actually much less if you don’t have your heart set on the wealthiest/less diverse neighborhoods) High acyclical incomes in the area help too.

 

I expect to see some volatility and perhaps some decreased liquidity (maybe things tsk a month instead of a week to sell eventually?).

 

The luxury market on the other hand appears to have slowed, more than couple of speculative $3mm newbuilds sitting there and causing pain and construction loan interest.

[gfp]

Interesting information guys - thanks.  There is certainly some stress at the banks.  In about a week's time I saw a friend get a 30 year Jumbo(!) loan at 2.5% and then watch local 30 year conforming rates hit 5% briefly in a liquidity / capacity crunch.

 

In reading articles about the airbnb hosts, I had no idea so many people had built up huge "arbitrage" airbnb businesses where they rent a bunch of units - sometimes hundreds - and host them on airbnb.  I knew about the big corporate players doing it like Sonder - but I didn't realize there were so many people trying to build their little arbitrage business with no capital.  Makes sense in this YouTube 'learn how to be an airbnb millionaire with no capital ' world..  Those guys are scrambling and their landlords will get hit I'm sure.

 

We have one airbnb and several long term rentals.  The airbnb went to zero on march 20th and we have a lot of nurses and teachers as tenants so we will probably fare ok.  But I noticed commercial banks dragging their feet on loans / terms / lines of credit this past week.  We'll see what this week brings.  I'm still expecting to borrow 5/20 at no more than prime plus one, which is 4.25% right now, so perhaps the bankers will not see it that way.  (these are 75% ltv multifamily commercial 5 year term, 20 year am rates - the standard for my market)

 

Certainly happy to have the single family house we recently renovated to sell closed in February.  Wouldn't want to be trying o sell something right now.

 

We tried to buy a 7 unit last week that fell out of contract over COVID fears but couldn't make the numbers work at anything close to asking price (mostly because of condition of the apartments, location was phenomenal) - but those 7 tenants had "I'm not paying a dime in rent for several months" written all over them!  And their landlord was paying utilities for 5 of the units...  Yikes

 

 

[Morgan]

I'm not sure what the banks are doing in my area yet, but I wouldn't be surprised if they're stopping everything except for top quality borrowers with lots of cash. I haven't tried to get a loan since all this corona virus stuff started.

 

That being said, I have three cheap fixer-up houses that were listed just before this began. They're all a little bit below what I think they're actually worth, but still basically no interest. My realtor told me there has been a "drastic slow down" in everything real estate. We shall see, but I don't anticipate selling those anytime soon.

 

I've been looking at some other deals and people haven't really started to drop their prices yet. Some have just been too high to begin with, but others don't seem to realize what kind of recession we're going into. The US is due for a slow down or recession. 10 years of growth quite a bit longer than average. My memory says five to seven years is the average.

 

Anyways, I have a few hundred apartments and only five or six tenants have said anything about not paying. We'll see what happens in the next two or three days.

[winjitsu]

I'm not sure what the banks are doing in my area yet, but I wouldn't be surprised if they're stopping everything except for top quality borrowers with lots of cash. I haven't tried to get a loan since all this corona virus stuff started.

 

That being said, I have three cheap fixer-up houses that were listed just before this began. They're all a little bit below what I think they're actually worth, but still basically no interest. My realtor told me there has been a "drastic slow down" in everything real estate. We shall see, but I don't anticipate selling those anytime soon.

 

I've been looking at some other deals and people haven't really started to drop their prices yet. Some have just been too high to begin with, but others don't seem to realize what kind of recession we're going into. The US in due for a slow down or recession. 10 years of growth quite a bit longer than average. My memory says five to seven years is the average.

 

Anyways, I have a few hundred apartments and only five or six tenants have said anything about not paying. We'll see what happens in the next two or three days.

 

Appreciate the data-points.

 

RE bottomed in '11 from the '09 crash, so it will take time for prices to come down (as is the nature of large, less liquid investments).

 

If corona virus causes a longer-term recession, maybe this may repeat for the asset class as a whole. If the recovery is quicker, perhaps it'll only be forced sellers that are over-levered.

[Guest cherzeca]

"...they're all opting for a lump sum payment of the deferral at the end of their term."

 

haven't read the bill yet.  does it require forbearance amounts to be paid as lump sum at end of mortgage term (ie added to final payment)?

[fareastwarriors]

I'm not sure what the banks are doing in my area yet, but I wouldn't be surprised if they're stopping everything except for top quality borrowers with lots of cash. I haven't tried to get a loan since all this corona virus stuff started.

 

That being said, I have three cheap fixer-up houses that were listed just before this began. They're all a little bit below what I think they're actually worth, but still basically no interest. My realtor told me there has been a "drastic slow down" in everything real estate. We shall see, but I don't anticipate selling those anytime soon.

 

I've been looking at some other deals and people haven't really started to drop their prices yet. Some have just been too high to begin with, but others don't seem to realize what kind of recession we're going into. The US is due for a slow down or recession. 10 years of growth quite a bit longer than average. My memory says five to seven years is the average.

 

Anyways, I have a few hundred apartments and only five or six tenants have said anything about not paying. We'll see what happens in the next two or three days.

 

Where are your apartments located primarily?

[montizzle]

"...they're all opting for a lump sum payment of the deferral at the end of their term."

 

haven't read the bill yet.  does it require forbearance amounts to be paid as lump sum at end of mortgage term (ie added to final payment)?

 

I believe that is how it is structured yeah

[Morgan]

I'm not sure what the banks are doing in my area yet, but I wouldn't be surprised if they're stopping everything except for top quality borrowers with lots of cash. I haven't tried to get a loan since all this corona virus stuff started.

 

That being said, I have three cheap fixer-up houses that were listed just before this began. They're all a little bit below what I think they're actually worth, but still basically no interest. My realtor told me there has been a "drastic slow down" in everything real estate. We shall see, but I don't anticipate selling those anytime soon.

 

I've been looking at some other deals and people haven't really started to drop their prices yet. Some have just been too high to begin with, but others don't seem to realize what kind of recession we're going into. The US is due for a slow down or recession. 10 years of growth quite a bit longer than average. My memory says five to seven years is the average.

 

Anyways, I have a few hundred apartments and only five or six tenants have said anything about not paying. We'll see what happens in the next two or three days.

 

Where are your apartments located primarily?

 

They're in the northern panhandle of West Virginia - about an hour west of Pittsburgh.

[Gregmal]

I think the current situation can create short term disturbances. But my feel was that things had already begun softening and one of the most under appreciated aspects of that was the SALT deduction ban.

[TwoCitiesCapital]

"...they're all opting for a lump sum payment of the deferral at the end of their term."

 

haven't read the bill yet.  does it require forbearance amounts to be paid as lump sum at end of mortgage term (ie added to final payment)?

 

I believe that is how it is structured yeah

 

It was my understanding from reading an article regarding BofA's mortgages that there are two types;

 

1) Bank owned

2) Investor owned/packaged into MBS

 

For bank owned mortgages, they can restructure the mortgage to extend the maturity by 2-3 months and basically tack those payments on at the end of the mortgage.

 

For packed mortgages/MBS where banks are just acting as mortgage servicer, they can defer payment up to 3 months, but then a lump sum is due to cover the principal/interest missed during those 3 months. Obviously this is less flexible and less helpful than the first.

 

The vast bulk of conforming mortgages are packaged and resold as MBS w/ banks acting as mortgage servicer.

[Spekulatius]

I think the current situation can create short term disturbances. But my feel was that things had already begun softening and one of the most under appreciated aspects of that was the SALT deduction ban.

 

Yes, the SALT deduction changes definitely impacts RE values in high tax states - NY, NJ, CT and MA. NY probably the worst.

[Jurgis]

I think the current situation can create short term disturbances. But my feel was that things had already begun softening and one of the most under appreciated aspects of that was the SALT deduction ban.

 

Yes, the SALT deduction changes definitely impacts RE values in high tax states - NY, NJ, CT and MA. NY probably the worst.

 

LOL. That's likely a reason a friend lost a bid on a house against 5 cash offers two weeks ago.

 

Not.

[fareastwarriors]

I think the current situation can create short term disturbances. But my feel was that things had already begun softening and one of the most under appreciated aspects of that was the SALT deduction ban.

 

Yes, the SALT deduction changes definitely impacts RE values in high tax states - NY, NJ, CT and MA. NY probably the worst.

 

Speaking for CA, we needed a price correction in 15-30% for a while now.  It has gotten crazy last 3-5 years.

 

So maybe a 1.5m home will only be ~1+m in the fall/winter or next year. Wow, such a discount. 

[fareastwarriors]

I think the current situation can create short term disturbances. But my feel was that things had already begun softening and one of the most under appreciated aspects of that was the SALT deduction ban.

 

Yes, the SALT deduction changes definitely impacts RE values in high tax states - NY, NJ, CT and MA. NY probably the worst.

 

LOL. That's likely a reason a friend lost a bid on a house against 5 cash offers two weeks ago.

 

Not.

 

My cousin is not backing away from 900k house in SF Bay Area suburbs. It will be her primary residence. She is not worry about a downturn and said she will buy more as investments if she see "deals."

 

 

 

 

[Jurgis]

I think the current situation can create short term disturbances. But my feel was that things had already begun softening and one of the most under appreciated aspects of that was the SALT deduction ban.

 

Yes, the SALT deduction changes definitely impacts RE values in high tax states - NY, NJ, CT and MA. NY probably the worst.

 

LOL. That's likely a reason a friend lost a bid on a house against 5 cash offers two weeks ago.

 

Not.

 

My cousin is not backing away from 900k house in SF Bay Area suburbs. It will be her primary residence. She is not worry about a downturn and said she will buy more as investments if she see "deals."

 

I feel Bay Area housing pain.

 

Last year I was going from SFO to Bay Area and I'm like "there's so much empty space everywhere, why nobody's building". But, yeah, I know, reasons.

 

I did not go to work in Silly Valley for RE price reasons close to 20 years ago. Yeah, I know looks stupid now. Coulda bought a house below 500K in Palo Alto haha.

 

A friend has $2-3M house in Los Altos. I'm telling him just sell and retire to some nice place and sip margaritas. Nah.

 

It's OK, everyone makes their choices.  8)

[BG2008]

I think the current situation can create short term disturbances. But my feel was that things had already begun softening and one of the most under appreciated aspects of that was the SALT deduction ban.

 

Yes, the SALT deduction changes definitely impacts RE values in high tax states - NY, NJ, CT and MA. NY probably the worst.

 

LOL. That's likely a reason a friend lost a bid on a house against 5 cash offers two weeks ago.

 

Not.

 

My cousin is not backing away from 900k house in SF Bay Area suburbs. It will be her primary residence. She is not worry about a downturn and said she will buy more as investments if she see "deals."

 

I feel Bay Area housing pain.

 

Last year I was going from SFO to Bay Area and I'm like "there's so much empty space everywhere, why nobody's building". But, yeah, I know, reasons.

 

I did not go to work in Silly Valley for RE price reasons close to 20 years ago. Yeah, I know looks stupid now. Coulda bought a house below 500K in Palo Alto haha.

 

A friend has $2-3M house in Los Altos. I'm telling him just sell and retire to some nice place and sip margaritas. Nah.

 

It's OK, everyone makes their choices.  8)

 

Jurgis,

 

Us bi-coastal elites have standards :)  arts, restaurants, and class and a rat race to get your kids into Harvard and Yale

[opihiman2]

I think the current situation can create short term disturbances. But my feel was that things had already begun softening and one of the most under appreciated aspects of that was the SALT deduction ban.

 

Yes, the SALT deduction changes definitely impacts RE values in high tax states - NY, NJ, CT and MA. NY probably the worst.

 

LOL. That's likely a reason a friend lost a bid on a house against 5 cash offers two weeks ago.

 

Not.

 

My cousin is not backing away from 900k house in SF Bay Area suburbs. It will be her primary residence. She is not worry about a downturn and said she will buy more as investments if she see "deals."

 

RE investors better have DEEP pocket and good relationships with their banks.  I've been hearing from people about investors and flippers about to get caught with their shorts down in a big way soon.

[Jurgis]

Jurgis,

 

Us bi-coastal elites have standards :)  arts, restaurants, and class and a rat race to get your kids into Harvard and Yale

 

Iknowrite.  8)

[Spekulatius]

I think the current situation can create short term disturbances. But my feel was that things had already begun softening and one of the most under appreciated aspects of that was the SALT deduction ban.

 

Yes, the SALT deduction changes definitely impacts RE values in high tax states - NY, NJ, CT and MA. NY probably the worst.

 

LOL. That's likely a reason a friend lost a bid on a house against 5 cash offers two weeks ago.

 

Not.

 

The housing appreciation in the states I mentioned (MA, NJ, CT, NY) is nothing like the appreciation that has occurred on the lower tax coast.

[Jurgis]

I think the current situation can create short term disturbances. But my feel was that things had already begun softening and one of the most under appreciated aspects of that was the SALT deduction ban.

 

Yes, the SALT deduction changes definitely impacts RE values in high tax states - NY, NJ, CT and MA. NY probably the worst.

 

LOL. That's likely a reason a friend lost a bid on a house against 5 cash offers two weeks ago.

 

Not.

 

The housing appreciation in the states I mentioned (MA, NJ, CT, NY) is nothing like the appreciation that has occurred on the lower tax coast.

 

lower tax coast? What is that? CA?  ::)

 

Also, data?